WEBVTT - Surveillance: U.S. Inflation With Kelly 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.080 with Jonathan Ferrell and Lisa Brownowitz Jay Ley, we bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment, and 0:00:17.280 --> 0:00:23.280 international relations. Find Bloomberg Surveillance on Apple, podcast, SoundCloud, Bloomberg 0:00:23.360 --> 0:00:30.000 dot Com, and of course, on the Bloomberg Terminal. David 0:00:30.040 --> 0:00:33.040 Kelly joins the style of JP Morgan Asset manages his 0:00:33.159 --> 0:00:36.519 work as a global economist and chief Global strategist for 0:00:36.600 --> 0:00:39.880 the Shop. David Kelly, I've never heard so much micro 0:00:40.000 --> 0:00:44.680 analysis in our life. Are the pros right? That is transitory? 0:00:46.320 --> 0:00:48.320 Part of its transitory, part of it has to be. 0:00:48.479 --> 0:00:50.960 But but where in the midst of an inflation heat 0:00:51.000 --> 0:00:54.040 wave here? Uh, you know, we're printing numbers above five 0:00:54.080 --> 0:00:55.760 percent a year over year, and of course it's going 0:00:55.800 --> 0:00:57.760 to back down from that. But what I think is 0:00:57.800 --> 0:01:00.000 interesting is that all let's talk about inflation, all us 0:01:00.000 --> 0:01:03.720 acceptance of inflation, all this these news headlines that's feeding 0:01:03.760 --> 0:01:07.360 into inflation expectations and inflation is to some extent a 0:01:07.440 --> 0:01:10.520 self fulfilling prophecy. So when people believe there's going to 0:01:10.560 --> 0:01:12.880 be higher inflation, they think they can raise their prices, 0:01:13.080 --> 0:01:15.120 they feel like they're they're willing to pay higher wages. 0:01:15.400 --> 0:01:17.560 So the broad picture here is one in which inflation 0:01:17.640 --> 0:01:20.480 is still running pretty hot and is likely to stay 0:01:20.520 --> 0:01:22.840 hot through the end of the year until really we 0:01:22.880 --> 0:01:25.080 see some sort of economic slowdown, which it doesn't seem 0:01:25.160 --> 0:01:27.080 to be on the horizon here. So I think this 0:01:27.200 --> 0:01:29.480 is still a very hot report here. So, David, do 0:01:29.480 --> 0:01:31.680 you think that the market response, the knee jerk response, 0:01:31.880 --> 0:01:34.640 is wrong that basically on the margins bonds yields into 0:01:34.680 --> 0:01:39.479 a little bit lower on this faith that it is transitory. Yes, well, 0:01:39.520 --> 0:01:42.080 I think I think we're too obsessed with second derivatives here. 0:01:42.080 --> 0:01:44.319 I mean, we're looking at, you know, the declines, but 0:01:44.360 --> 0:01:46.360 we're still a on of five handle on inflation. So 0:01:46.640 --> 0:01:48.680 to me, it's not so much the the outer our 0:01:48.800 --> 0:01:52.360 reaction of the bond market, um. It is the notion 0:01:52.440 --> 0:01:55.000 that you could have a five percent inflation rate with 0:01:55.080 --> 0:01:58.400 the one point four percent tenure treasury yield. I think 0:01:58.440 --> 0:02:01.920 that's that's extraordinary, um, and I don't think it will persist. 0:02:01.960 --> 0:02:03.680 I do think that we're going to see later on 0:02:03.720 --> 0:02:06.040 this month of FED is gonna, you know, say that 0:02:06.080 --> 0:02:08.400 they're gonna lay out plans for tapering. I think I'll 0:02:08.440 --> 0:02:10.720 start tapering at the end of the year UM, and 0:02:10.760 --> 0:02:13.480 gradually that's going to push interest rates higher. I think 0:02:13.520 --> 0:02:15.920 it has to, given given where the inflation rate is 0:02:16.080 --> 0:02:17.880 and and the fact that I don't think inflation is 0:02:17.919 --> 0:02:19.959 all transitory. I think some of this will stick around 0:02:20.200 --> 0:02:22.359 for the rest of this expansion. Let's put some numbers 0:02:22.360 --> 0:02:24.320 on that, David, the kind of numbers you're looking for 0:02:24.520 --> 0:02:28.000 into twenty two four handle on inflation, three handle, what 0:02:28.160 --> 0:02:30.480 is it? Well? I think I think the first thing 0:02:30.520 --> 0:02:32.360 is that at the end of the year, we're expecting 0:02:32.360 --> 0:02:35.640 to see a consumption to flatter inflation rate between three 0:02:35.639 --> 0:02:38.560 and a half and four percent. So the FED is, 0:02:38.680 --> 0:02:40.960 you know, have jumped up to three point four percent. 0:02:41.000 --> 0:02:43.440 I think there's still low on that number. And then 0:02:43.480 --> 0:02:46.480 going into next year, I think we'll have persistent CPI 0:02:46.600 --> 0:02:49.960 inflation of about two and a half to three percent UM, 0:02:50.120 --> 0:02:53.440 with the consumption inflation inflation rates running about two four 0:02:53.600 --> 0:02:56.520 to five year over year, so well above that the 0:02:56.560 --> 0:02:59.200 FEDS to percent long term target. We're still not looking 0:02:59.240 --> 0:03:01.239 for hyper inflation. I think the economy will eventually so 0:03:01.400 --> 0:03:04.799 down enough to avoid that. But I think we're back 0:03:04.800 --> 0:03:07.799 into a new old normal where inflation runs above two 0:03:07.840 --> 0:03:10.400 percent on average rather than below two percent on average. 0:03:10.400 --> 0:03:14.679 It's the Fed comfortable with that dynamic divid They shouldn't be, 0:03:14.680 --> 0:03:17.480 because it's not just inflation, it's about as surprises too. 0:03:17.639 --> 0:03:19.680 I think there, I think there there should be a 0:03:19.680 --> 0:03:23.400 growing recognition that a very very long period of super 0:03:23.440 --> 0:03:26.440 low interest rates is not only setting the stage for 0:03:26.480 --> 0:03:31.400 higher inflation. It's enabling pretty reckless fiscal policy in many ways, 0:03:31.840 --> 0:03:34.640 but it's also spurring asset bubbles and all those things 0:03:35.160 --> 0:03:37.480 you know are our landlines for the economy going forward. 0:03:37.520 --> 0:03:39.880 So the Fed shouldn't feel comfortable. What they should be 0:03:39.920 --> 0:03:43.600 doing is getting ready to raise interest rates and to 0:03:43.760 --> 0:03:46.720 cut back on bomb purchases. And John Farroll, we had 0:03:46.720 --> 0:03:48.880 read and green in the screen, down up, others not, 0:03:49.160 --> 0:03:51.320 and now they're all green in the screen. SPX and 0:03:51.440 --> 0:03:55.240 Dow futures, John Outter, record high features up thirty seven, 0:03:55.240 --> 0:03:58.000 advance in a quarter of one percent to yields behave 0:03:58.000 --> 0:03:59.960 in themselves will lower by a basis point of the 0:04:00.040 --> 0:04:02.920 front end. Now the two years at about two basis points. 0:04:02.920 --> 0:04:06.160 Called it twenty three. David Kelly with your frontline economics 0:04:06.160 --> 0:04:10.760 and also doing strategy for JP Morgan. Fold this economics 0:04:10.920 --> 0:04:15.520 and macro price change into the JP Morgan conviction on 0:04:15.560 --> 0:04:19.960 the equity market. The key thing is that this, you know, 0:04:20.040 --> 0:04:22.800 we're we're still speeding, We're just speeding a little bit 0:04:22.800 --> 0:04:25.559 more slowly, but we are exceeding by a long shot, 0:04:25.640 --> 0:04:28.360 the capacity growth rate of the U S economy. We're 0:04:28.400 --> 0:04:32.240 barreling towards full employment, full capacitalization. That does push up 0:04:32.279 --> 0:04:35.000 interest rates. Now everything pivots off interest rates. You've got 0:04:35.080 --> 0:04:37.160 higher long term interest rates. I think that you'll see 0:04:37.360 --> 0:04:40.800 a return to this UM, you know, growth to value 0:04:40.880 --> 0:04:44.200 rotation UM. I think that you'll see a return to UM, 0:04:44.400 --> 0:04:47.960 you know, a sort of compression of valuations across markets. 0:04:48.040 --> 0:04:50.479 And you know, particularly when I look overseas at very 0:04:50.600 --> 0:04:53.960 cheap um equity valuations and relative terms overseas. I think 0:04:54.000 --> 0:04:57.240 that's going to become more important UM as interest rates rise, 0:04:57.279 --> 0:04:59.880 because interest rates forced you to think about valuations. I 0:05:00.040 --> 0:05:03.039 do think that higher inflation, strong growth means higher interest rates. 0:05:03.120 --> 0:05:05.360 At heart, you're a policyman, David, so let's finish their 0:05:05.440 --> 0:05:07.960 Muhammad erin the Washington Post on Friday put out an 0:05:08.040 --> 0:05:10.800 article basically asking a question whether the dynamics that we 0:05:10.839 --> 0:05:15.320 were discussing would overwhelm the administration's goals. Do you think 0:05:15.480 --> 0:05:19.680 it will? Um? I think I think it could well 0:05:19.720 --> 0:05:22.560 because I think people are misunderstanding what's going on the economy. 0:05:22.560 --> 0:05:25.760 The economy is adapting to COVID. I mean, we had one, 0:05:26.080 --> 0:05:29.159 We've had one economic wave, We've had four pandemic waves. 0:05:29.200 --> 0:05:31.839 But the economy is is in you know, sort of 0:05:31.839 --> 0:05:34.840 shrugging these things off. It's heading towards full employment. I 0:05:34.880 --> 0:05:38.840 think the dangerous the economy will overheat before before the 0:05:38.880 --> 0:05:41.440 administration can achieve a lot of its long term goals, 0:05:41.440 --> 0:05:43.800 and just dealing with the macro overheating issue is going 0:05:43.839 --> 0:05:45.320 to prevent them from dealing with a lot of the 0:05:45.360 --> 0:05:48.000 goals they want to achieve. So I think that's fair common. 0:05:48.200 --> 0:05:50.840 You have a friend in West Virginia, David Kelly. Thank you, sir. 0:05:50.920 --> 0:05:53.160 J P. Mrkan as in management chief Global strategy is 0:05:53.160 --> 0:05:55.640 sounding a little bit like sending a mansion at the end, there, 0:05:55.880 --> 0:06:03.160 Tom the senator from West Virginia. Let's kick things off 0:06:03.160 --> 0:06:07.719 with Tony presnzi Let market strategist, portfolio manager and Investment 0:06:07.720 --> 0:06:11.120 Committee member. Tony, you've called it preparing as the right crescendo. 0:06:11.440 --> 0:06:14.200 What do you mean by that, Tony, Well, I mean 0:06:14.240 --> 0:06:17.160 to find a name other than transitory that's closer matching 0:06:17.240 --> 0:06:23.600 to my name. Other than that. Other than that, there 0:06:23.600 --> 0:06:25.680 are many things, of course that are peaking, but a 0:06:25.720 --> 0:06:28.560 crescendo is probably a better word to think about musical band. 0:06:28.720 --> 0:06:31.559 Of course, the music keeps playing, so, in other words, 0:06:31.560 --> 0:06:34.680 for inflation, even though it'll peak at some point in 0:06:34.800 --> 0:06:39.120 terms of its sound, the level it still might be high, um, 0:06:39.160 --> 0:06:42.040 and that might unnerve investors at some point. That's why, 0:06:42.160 --> 0:06:44.920 as you all know, this morning's data is important, and 0:06:44.920 --> 0:06:47.599 of course the data in the court a quarters ahead 0:06:47.600 --> 0:06:49.760 in terms of the inflation story, whether the Fed can 0:06:49.839 --> 0:06:52.800 can re get gain control of the narrative, which it 0:06:52.839 --> 0:06:56.000 pretty much did in June. Tony, you've taken over the 0:06:56.000 --> 0:06:59.320 mantel from the great Fabosi in terms of writing the book. 0:06:59.320 --> 0:07:02.520 The new book is or must read, folks, the strategic 0:07:02.600 --> 0:07:06.520 bond investor. It's actually an English which unlike many many 0:07:07.040 --> 0:07:09.200 bond books and in their Tony, you go to the 0:07:09.240 --> 0:07:13.720 buzzword right now, which is narrative. You talk from tulips 0:07:13.760 --> 0:07:17.320 to treasuries. What that's you know, the market talk that's 0:07:17.360 --> 0:07:20.600 out there. What's the narrative right now? That is wrong 0:07:22.680 --> 0:07:26.880 to use the twenty tens analogy for today. The twenty 0:07:26.880 --> 0:07:30.239 tens analogy was that if we used if we apply 0:07:30.640 --> 0:07:34.480 what happened in tens to ties, will probably all get 0:07:34.560 --> 0:07:37.520 it wrong. By it, we probably mean the inflation rate, 0:07:38.160 --> 0:07:41.880 interest rates, and even the growth story. Um now, some 0:07:41.920 --> 0:07:45.000 of these things will be given than last times. For example, 0:07:45.040 --> 0:07:48.160 interest rates could well be higher than in the last decade, 0:07:48.440 --> 0:07:51.120 but that doesn't necessarily mean that equities will be lower 0:07:51.240 --> 0:07:53.800 in the comic decade, because what we have seen is 0:07:53.800 --> 0:07:57.600 a reboot of the because of the COVID crisis. And 0:07:57.640 --> 0:08:01.760 I think back to May in June called Cornwell Consensus 0:08:02.160 --> 0:08:04.840 was a G seven meeting on a document written in 0:08:04.960 --> 0:08:08.520 Cornwall when we're in England where the Chief seven met uh. 0:08:09.080 --> 0:08:12.880 It aimed at fostering better conditions for growth, in part 0:08:12.960 --> 0:08:16.440 of course, to take on China economically, which, by the way, 0:08:16.480 --> 0:08:18.400 it's not such a scary thing. We think back to 0:08:18.480 --> 0:08:22.640 the Cold War nineteen. If an investor went in the cave, 0:08:22.840 --> 0:08:25.440 it was a mistake, of course, that the global pie 0:08:25.560 --> 0:08:28.440 grew and it made sense for investors to be invested 0:08:29.120 --> 0:08:31.120 here instead. Of an arms race, it's a tech race. 0:08:31.160 --> 0:08:34.640 It's economic and economic race that the nations are coming 0:08:34.679 --> 0:08:38.319 together to to to to win, and so we may 0:08:38.360 --> 0:08:40.120 have a much different story in its three and a 0:08:40.160 --> 0:08:42.880 half trillion dollar bill that has been passed along with 0:08:42.960 --> 0:08:46.280 the one trillion dollar bill, is an effort that is 0:08:46.320 --> 0:08:49.920 consistent with the so called Cornwell consists consensus to create 0:08:49.960 --> 0:08:54.040 more inclusiveness, to make economies greener, and of course to 0:08:54.160 --> 0:08:57.800 digitize and to be bigger economically. Tony, the three and 0:08:57.800 --> 0:09:00.160 a half trillion dollar plan, it's unclear why there it 0:09:00.160 --> 0:09:02.080 will actually pass. A lot of analysts put it at 0:09:02.080 --> 0:09:04.240 a fifty fifty at best. You have this one point 0:09:04.240 --> 0:09:07.040 two trillion dollars in total, fifty billion dollars of new 0:09:07.080 --> 0:09:10.920 spending that may get past the infrastructure the bipartisan bill. 0:09:11.480 --> 0:09:13.960 If the three and a half trillion dollar plan does 0:09:14.040 --> 0:09:17.640 not get passed, do you still foresee higher yields in 0:09:17.640 --> 0:09:21.600 this cycle than we saw in the previous cycle. It's 0:09:21.679 --> 0:09:23.599 highly probable, as you say, at least so that the 0:09:23.760 --> 0:09:26.280 bill will be smaller than what was passed. We see 0:09:26.320 --> 0:09:29.480 it probably closer to two chillion, but there are upside 0:09:29.760 --> 0:09:32.720 risks to that. But the likelihood of passage by the 0:09:32.800 --> 0:09:35.199 end of the year seems very high, but it is 0:09:35.240 --> 0:09:40.040 an important part of the equation because investment in people 0:09:40.240 --> 0:09:44.760 and things, infrastructure, broadbrand technology, as the first bill has 0:09:44.880 --> 0:09:48.080 investments in those are the things that drive productivity. Remember 0:09:48.080 --> 0:09:51.240 the simple math on economic growth in the US. Historically 0:09:51.280 --> 0:09:54.000 it's been one plus a two one increase in the 0:09:54.040 --> 0:09:57.559 amount of humans to produce goods and services and to 0:09:57.679 --> 0:09:59.959 percent increase in how productive they were. That math is 0:10:00.160 --> 0:10:03.280 change the one percent to increase in people, as we 0:10:03.320 --> 0:10:06.160 see because of retire retirements, is now about a half 0:10:06.160 --> 0:10:08.400 percent is projected to be there for the next thirty years. 0:10:08.440 --> 0:10:11.720 According to the Congressional Budget Office the CBO, productivity has 0:10:11.760 --> 0:10:13.760 been running about one and a half percent, which of 0:10:13.800 --> 0:10:16.720 course is slow. But to get that number higher to 0:10:16.800 --> 0:10:21.120 make a better story in terms of the growth picture, UH, 0:10:21.440 --> 0:10:24.360 there need be investments in people, UH and in things 0:10:24.520 --> 0:10:27.200 and and ultimately final the final word on this is 0:10:27.240 --> 0:10:30.800 that what the biggest jover of productivity and therefore growth 0:10:30.880 --> 0:10:33.960 is UH total factor productivity. Fancy way of saying, how 0:10:33.960 --> 0:10:35.920 do we use people's skills? How do we use the 0:10:35.960 --> 0:10:39.520 things that are in place to produce things better? And faster. Uh. 0:10:39.640 --> 0:10:42.160 That that will be determined by the private sector primarily, 0:10:42.200 --> 0:10:45.000 but the government sector seems to be engaged even in 0:10:45.080 --> 0:10:48.640 Europe and in the same vein and uh. And so 0:10:48.679 --> 0:10:51.040 it's an important story that's developed in terms of the 0:10:51.080 --> 0:10:54.080 efforts to invest. Tony, you gotta leave it that it's 0:10:54.080 --> 0:10:58.319 gonna catch up to John strategist and pull folio manager, Tony. 0:10:58.360 --> 0:11:06.760 Thank you. Joining us now is Patrick Palfrey of Credit Swaye. Patrick, 0:11:06.840 --> 0:11:10.319 let's stop right there your recording market call five K 0:11:10.559 --> 0:11:13.439 year end next year. But within that and I find 0:11:13.480 --> 0:11:17.360 this really interesting. You're not looking for multiple expansion, quite 0:11:17.360 --> 0:11:21.600 the opposite. Can you walk me through the cool Patrick? Yeah, John, 0:11:21.640 --> 0:11:23.960 I mean you're you're absolutely right. I think what a 0:11:24.000 --> 0:11:27.080 lot of people are under appreciating about this curb, Patrick, 0:11:27.320 --> 0:11:31.720 is just how strong the corporate profits are growing. And 0:11:31.800 --> 0:11:36.120 in reality, we're seeing the growth in the E outstripping 0:11:36.200 --> 0:11:39.640 the P. So what that means is the PE is 0:11:39.720 --> 0:11:42.880 flat to slightly down from here. I know it's hard 0:11:42.920 --> 0:11:45.120 to wrap your head around, but when you have profits 0:11:45.160 --> 0:11:49.559 going this year followed by high single digits next year, 0:11:49.760 --> 0:11:52.960 it allows for multiples to stay constant and flat as 0:11:52.960 --> 0:11:55.800 opposed to expand. I think that's critical as we look 0:11:55.840 --> 0:11:57.679 at what the driver of returns are for the next 0:11:57.760 --> 0:12:00.640 twelve eighteen months. Patrick, the credit suite heritage in New 0:12:00.720 --> 0:12:04.000 York is extraordinary from the late nineties, and Kent Osben 0:12:04.080 --> 0:12:07.560 and Michael Mobison and the rest dominique constant onto what 0:12:07.679 --> 0:12:11.439 you and John gollub are doing today. It's hyper hyper 0:12:11.520 --> 0:12:16.560 detailed in your factor analysis, which is the factor on 0:12:16.600 --> 0:12:19.559 the scattered at chart that gets you to a gallup 0:12:19.720 --> 0:12:25.360 five thousand sp X. Well, right now that that factor's value, 0:12:25.800 --> 0:12:29.520 it's pro cyclicality. Uh, it's looking at the infrastructure package 0:12:29.600 --> 0:12:32.120 that potentially just passed and the one that is getting 0:12:32.120 --> 0:12:34.440 framed out currently and looking at what's going on with 0:12:34.480 --> 0:12:37.440 interest rates and saying where can I get exposure to 0:12:37.679 --> 0:12:42.120 the dollars being spent? And that is economic sensitivity. It 0:12:42.360 --> 0:12:46.600 is financials, its industrials, its materials, energy, it's anything that 0:12:46.640 --> 0:12:50.000 looks traditionally value oriented. That's where the leadership is going 0:12:50.040 --> 0:12:52.520 to come from. Over then your intermediate term, Patrick, I 0:12:52.520 --> 0:12:55.880 want to understand your call for much fatter earnings going forward, 0:12:56.000 --> 0:12:58.240 so the PE ratio is to actually start going down 0:12:58.280 --> 0:13:01.360 despite the fact that price well couldtinue to rise. Mike 0:13:01.400 --> 0:13:03.760 Wilson of Morgan Stanley yesterday came on and he said 0:13:03.800 --> 0:13:07.240 that he thinks people are underestimating margin pressures. This seems 0:13:07.280 --> 0:13:09.360 to fly on the face of your call. Why our 0:13:09.360 --> 0:13:11.480 company is going to be able to continue to pass 0:13:11.520 --> 0:13:15.559 along expected at price increases for their inputs to consumers 0:13:15.559 --> 0:13:20.400 for the foreseeable future. Well, I think it's actually simpler 0:13:20.440 --> 0:13:23.280 than that they pass them along. It takes time, so 0:13:23.320 --> 0:13:25.880 it doesn't mean, you know, month to month, there may 0:13:25.880 --> 0:13:29.720 not be incremental um input costs, building. I specify input 0:13:29.720 --> 0:13:32.480 costs because margins the total picture. And often times when 0:13:32.480 --> 0:13:35.560 people talk about margin, there's two components. There's variable, which 0:13:35.600 --> 0:13:37.720 is that input cost pressure and how that gets passed through, 0:13:37.760 --> 0:13:40.440 and then there's the fixed part. And in reality, when 0:13:40.440 --> 0:13:43.480 we begin to pass through those input costs, you're driving 0:13:43.640 --> 0:13:47.000 higher sales over the existing fixed cost part of your business. 0:13:47.040 --> 0:13:51.280 That's your machinery, it's your um, it's your buildings, it's 0:13:51.320 --> 0:13:55.439 all those long life assets, and that causes significant margin 0:13:55.559 --> 0:13:59.600 accretion driving higher sales over those fixed costs. So really, 0:13:59.640 --> 0:14:02.600 what we typically see as margin pressure arises when sales 0:14:02.640 --> 0:14:05.680 begin to falter. As long as sales remain healthy and 0:14:06.040 --> 0:14:10.360 demand looks great. The inventory backlob looks phenomenal. Um. We 0:14:10.520 --> 0:14:13.439 do not seeing margin pressure um coming from any of 0:14:13.480 --> 0:14:15.920 these issues. Patrick gotta jump in with some news, just 0:14:16.000 --> 0:14:20.400 some amazing headlines coming from the National Security Advisor, Mr Sullivan, 0:14:20.800 --> 0:14:23.720 Tom saying that Opaque plus must do more to support 0:14:23.760 --> 0:14:27.960 the recovery, that OPEC plus production boosts have not been enough. 0:14:28.040 --> 0:14:30.360 This is the first real sign of the administration starting 0:14:30.440 --> 0:14:33.280 to lean on OPEC plus, Tom, because of higher crude 0:14:33.280 --> 0:14:37.080 prices and ultimately because of higher gas prices in this country. 0:14:37.120 --> 0:14:39.320 And what's different here, it's not the it's not the 0:14:39.400 --> 0:14:42.560 process John, that we remember from years ago, with American 0:14:42.640 --> 0:14:48.360 independence and with Americans supply elasticity, our responsiveness to price. 0:14:48.840 --> 0:14:51.680 We can fix the problem to a great extent if 0:14:51.800 --> 0:14:57.320 we get higher oil prices. Clearly administration thinks barrels high 0:14:57.560 --> 0:15:00.680 low right now lower sixty seven five step on w 0:15:00.760 --> 0:15:02.840 t I list, we're down by about one point two percent. 0:15:02.880 --> 0:15:06.480 This is Jake Sullivan, the National Security Advisor, basically saying 0:15:06.520 --> 0:15:09.360 Lisa that Okay plus needs to do more. Why now, 0:15:09.600 --> 0:15:12.920 that's my question, Why now this morning, why this morning, 0:15:12.960 --> 0:15:15.280 ahead of the CPI print. I mean this to me 0:15:15.480 --> 0:15:19.440 is a difficult sort of a thread needle to thread 0:15:19.640 --> 0:15:21.720 because right now we're looking at a market. Thank you. 0:15:21.800 --> 0:15:24.040 I try, I really try hard, but John that to me, 0:15:24.080 --> 0:15:26.120 I think we have to repeatedly ask throughout them. The 0:15:26.240 --> 0:15:28.160 clue is at eight thirty Eastern, isn't it? When we 0:15:28.200 --> 0:15:31.160 get an inflation report in America? Patrick? Just to wrap 0:15:31.240 --> 0:15:33.720 up here, energy in the equity market, that sector is 0:15:33.800 --> 0:15:35.920 up thirty one percent year today had a bit of 0:15:35.960 --> 0:15:38.280 a battle, particularly over the last week, given what crude 0:15:38.280 --> 0:15:42.320 prices have been up to. Where do you stand on energy? Well, 0:15:42.400 --> 0:15:43.960 right right now, I think it's really just depending on 0:15:44.000 --> 0:15:46.680 where the party goes and looking at what just came out, 0:15:46.680 --> 0:15:48.600 should should crewe begin the back of herre. I think 0:15:48.600 --> 0:15:50.800 it is a little bit more difficult for energy to 0:15:50.800 --> 0:15:53.360 continue to work. But over the longer term, we still 0:15:53.360 --> 0:15:55.400 think demand remains strong. If we look out twelve to 0:15:55.520 --> 0:15:58.560 eighteen months, um GDPs are suspected to run well above 0:15:58.600 --> 0:16:00.840 trent and that is really to keep a bid under 0:16:00.840 --> 0:16:03.400 oil um in all commodities for that matter, and and 0:16:03.440 --> 0:16:06.000 really continue to tell the energy sector. So today may 0:16:06.000 --> 0:16:07.720 not be the best tay given the news, but but 0:16:07.840 --> 0:16:09.720 longer term we think it's still work when the administration 0:16:09.720 --> 0:16:11.680 wants to do something about it. Patrick, It's gonna catch up, 0:16:11.720 --> 0:16:18.480 Patrick Poufy, that of credit sways a joy to speak to. 0:16:18.560 --> 0:16:22.360 Steve sad Off to say he's former Sex CEO barely 0:16:22.400 --> 0:16:26.040 describes his contribution to fashion and retail when you hear 0:16:26.080 --> 0:16:30.440 the word exclusive, he invented that. He's now Mastercard's senior 0:16:30.480 --> 0:16:34.560 advisor on a boom economy, Steve, I want to go 0:16:35.200 --> 0:16:40.160 to mortar and brick at seven sixty Madison Avenue. Aramez 0:16:40.320 --> 0:16:43.600 is taking a landmark building of brick and mortar and 0:16:43.640 --> 0:16:46.120 they're building it out, and it really speaks to the 0:16:46.280 --> 0:16:51.360 durability of on site retail versus Amazon. Tell us about 0:16:51.400 --> 0:16:55.520 the presumed death of mortar and brick, and I think 0:16:55.560 --> 0:16:58.560 this death of retail and brick and mortar was so 0:16:58.840 --> 0:17:02.000 short lived that brick and mortar retail is back. If 0:17:02.000 --> 0:17:05.040 you look at the MasterCard spending POLT data, it would 0:17:05.040 --> 0:17:07.600 tell you that for the month of July, for example, 0:17:07.680 --> 0:17:11.840 brick and mortar was a versus year ago and represented 0:17:12.760 --> 0:17:17.000 of all commerce. So while the digital has transformed shopping, 0:17:17.480 --> 0:17:20.440 people want omni channel. They want product whenever and wherever 0:17:20.480 --> 0:17:24.399 they want to get it. The physical retail store is back, 0:17:24.840 --> 0:17:27.840 and you're seeing across the board, and the ur Metta's 0:17:27.880 --> 0:17:30.960 example that you just gave is a good one relative 0:17:31.000 --> 0:17:34.600 to stores are reopening, they're more reopenings of physical stores 0:17:34.720 --> 0:17:37.280 right now than we've seen in years. Not I'm not 0:17:37.359 --> 0:17:39.960 talking about reopening the closed stores. I'm talking about opening 0:17:40.040 --> 0:17:43.600 new stores. So luxury is back. What you find is 0:17:43.680 --> 0:17:47.040 that the across all levels, the lower end, the high end, 0:17:47.320 --> 0:17:49.520 you're seeing people back in the stores. They want to 0:17:49.560 --> 0:17:54.200 experience shopping. They've missed shopping in the physical store. Yes 0:17:54.240 --> 0:17:57.960 they're buying online, and yes, brick and mortar has gone 0:17:58.480 --> 0:18:01.120 I'm sorry. Digital has gone from all percent of commerce 0:18:01.160 --> 0:18:05.080 to eighteen percent of commerce. But luxury and physical retail 0:18:05.320 --> 0:18:09.159 is back. How will Amazon respond to this, all of 0:18:09.200 --> 0:18:12.560 this the pandemic. How does the Amazon with a relatively 0:18:12.640 --> 0:18:17.480 small part of your world, how do they expand their world? Well, 0:18:17.480 --> 0:18:20.560 I think I think Amazon is the gold standard in 0:18:20.720 --> 0:18:24.880 terms of the experience that consumers. Yet remember they want 0:18:24.920 --> 0:18:27.879 an omni channel experience. They want the physical store, but 0:18:27.960 --> 0:18:30.639 they also want the convenience of online, so online. I 0:18:30.640 --> 0:18:35.679 would never never underestimate Amazon and its power and the 0:18:35.760 --> 0:18:38.280 impact that it has on the rest of commerce. But 0:18:38.359 --> 0:18:41.680 I would tell you that the brick and mortar physical 0:18:41.760 --> 0:18:45.040 store use examples like a Warby Parker where they when 0:18:45.040 --> 0:18:48.320 they open a physical store, they get triple their digital business. 0:18:48.359 --> 0:18:51.720 So it's this interaction of the physical and the digital 0:18:51.800 --> 0:18:54.959 that is so important. And in the post pandemic world, 0:18:55.359 --> 0:18:58.200 we've seen how important the digital piece of it is. 0:18:58.400 --> 0:19:01.320 But it's not digital alone, Steven, and that really is 0:19:01.359 --> 0:19:03.199 the story of what you're seeing in the data. But 0:19:03.240 --> 0:19:06.040 Steve talking about the changing nature of brick and mortar 0:19:06.080 --> 0:19:08.720 with the digital aspect of it, I'm curious about the 0:19:08.760 --> 0:19:11.720 location of where brick and mortar is coming back fastest 0:19:11.960 --> 0:19:14.160 since there has been a migration. And when I look 0:19:14.520 --> 0:19:17.000 on Manhattan's streets, for example, there's still a lot of 0:19:17.040 --> 0:19:21.600 empty storefronts for rent for retail. Yeah, I think that 0:19:21.600 --> 0:19:23.800 you've got to take New York a little bit as 0:19:23.840 --> 0:19:26.560 an anomaly to what's going on around the country because 0:19:26.560 --> 0:19:28.840 so much of the New York business, let's take the 0:19:28.920 --> 0:19:32.919 luxury side of it as an example, somewhere around it 0:19:33.000 --> 0:19:36.359 is tied to international tourism, which isn't there right now. 0:19:36.480 --> 0:19:39.679 So New York, I believe does have some long, you know, 0:19:39.760 --> 0:19:42.399 shorter term issues. Long term, it will come back. But 0:19:42.560 --> 0:19:44.840 I think that you're seeing it across the you know, 0:19:45.000 --> 0:19:48.359 you're seeing some shift back to the malls. Mall's performance 0:19:48.480 --> 0:19:50.919 was positive in the last several months. Look at the 0:19:50.960 --> 0:19:54.120 numbers that Simon's putting on the on the board. So 0:19:54.440 --> 0:19:57.479 I think that it's going to be a back into 0:19:57.520 --> 0:20:01.320 Certainly some of the malls. Suburban markets are performing well, 0:20:01.640 --> 0:20:04.960 and a lot of the secondary cities are performing very well. 0:20:05.000 --> 0:20:06.960 I think New York's a little bit slower than other 0:20:07.119 --> 0:20:10.080 UH cities, but I think that you're in a period 0:20:10.080 --> 0:20:12.320 of time where this is a little bit of a 0:20:12.320 --> 0:20:17.040 Goldilocks retail environment because I have never seen in years 0:20:17.440 --> 0:20:21.840 almost every sector of the MasterCard the categories performing well. 0:20:22.000 --> 0:20:25.200 Luxury look at the numbers, You're a fifty percent versus 0:20:25.200 --> 0:20:29.800 the pre pandemic period. Luxury jewelry department stores are up 0:20:29.840 --> 0:20:34.639 seven percent versus a pre pandemic period. You're looking at 0:20:34.640 --> 0:20:37.359 a peril growing at ten percent versus nineteen. I'm not 0:20:37.359 --> 0:20:40.880 talking about last year's numbers. That's there was an anomaly 0:20:40.920 --> 0:20:44.600 because of the pandemic, but versus pre pandemic levels, and 0:20:44.640 --> 0:20:47.359 that leads you back to your question about stores opening 0:20:47.440 --> 0:20:50.359 up in the UH in the urban areas and some 0:20:50.400 --> 0:20:52.119 of the suburban because when you see this kind of 0:20:52.119 --> 0:20:56.040 growth and the omni channel presence the consumers there, so 0:20:56.200 --> 0:20:59.960 retailers start opening stores again. So just what would you 0:21:00.080 --> 0:21:02.560 say to people who say this is somewhat idiosyncratic. People 0:21:02.560 --> 0:21:05.240 are getting back to work, they have to restock their wardrobes, 0:21:05.280 --> 0:21:08.200 perhaps after the pandemic fifteen or whatever you want to say, 0:21:08.280 --> 0:21:11.240 They're going back to school. There's a huge seasonal factor 0:21:11.320 --> 0:21:14.399 here that could potentially be pushing these numbers way beyond 0:21:14.400 --> 0:21:16.280 where they will be averaged out by the end of 0:21:16.280 --> 0:21:18.080 the year. What do you say to people who would 0:21:18.119 --> 0:21:21.679 argue that, well, I think that there's some element of 0:21:21.880 --> 0:21:24.320 you've got the benefit of the child tax credit, for example, 0:21:24.320 --> 0:21:26.560 that's helping the You saw a bump in the end 0:21:26.560 --> 0:21:29.880 of July and the MasterCard numbers as a result of that. 0:21:30.440 --> 0:21:33.399 I think you have this near term phenomena of a 0:21:33.520 --> 0:21:36.960 shortage of inventory. Right now, you can't find a product, 0:21:37.400 --> 0:21:41.280